The breadth of economic activity undertaken by a nation’s economy is important, so let’s take a look at the diversity of Scotland’s economic output and examine how that compares to other countries.
Scotland’s oil sector:
In 2021, Scotland accounted for 90% of the UK’s sales value of oil and gas, which has led to claims that it is over-reliant on the sector. In actuality, Scotland’s economy is diverse and broad-based. The 2015/16 fluctuation in oil and gas prices had less of a detrimental impact than the Financial Crisis. Between 2008/9 and 2009/10 in the aftermath of the Financial Crisis, UK GDP shrank by 1.01%. In comparison, after a ‘catastrophic’ drop in oil prices between 2014/15 and 2015/16, Scotland’s estimated total GDP shrank by 0.46%. When only the onshore economy is considered, Scotland’s economy actually grew by 1.56%. Conversely, huge increases in North Sea oil revenue contribute significantly to Scotland’s estimated GDP but profits are mismanaged by Westminster compared to similar oil producing nations. The ‘downs’ are manageable but Scotland does not benefit from the ‘ups’ as much as it could.
In 2022/23, offshore revenue (revenue from oil and gas) made up 10.95% of Scotland’s total estimated GDP. This was a record year (in cash terms) for oil revenues, in part due to geopolitical factors such as the war in Ukraine.
Scotland is far less dependent on oil than other major oil producing nations. Norway’s petroleum sector currently represents 24% of the country’s total GDP (more than double that of Scotland’s), as well as 52% of total exports. It is currently the fourth richest country in the world by GDP per capita – the UK does not rank in the top twenty. Their pension fund, which is generated from oil and gas revenues, is worth around £1.15 trillion, meaning that their national savings massively outweigh their national debt.
Since the oil price crash in 2014/15, Norway has generated a total revenue of over £90 billion from its oil and gas sector, compared to the UK’s relatively measly £10.98 billion in the same time period. This means that Norway’s oil revenues are over quintuple that of the UK’s – despite the fact that the two countries’ production levels are almost identical (from the late 60s to 2021, the UK’s production levels were actually slightly higher!). Remember that this is while Norway’s economy is more than twice as dependent on its oil sector than Scotland.
Ironically, Scotland has lost out financially not only from the UK’s (mis)handling of its oil resources but also to Norway itself. The controversial Rosebank oil field was recently granted government approval to be developed by the Norwegian state oil company, Equinor. While Scotland has to see its oil profits be drained by the UK economy without being able to take advantage of them, its resources help to strengthen Norway’s sovereign wealth fund. It is a bitter reminder of how things could be so different.
Scotland’s economy is significantly less reliant on oil and gas than Norway – a country which has managed to thrive with similar resources. The UK is also more reliant on business and financial services based in the City of London than Scotland is on its oil sector.
Norway, an independent European country with a comparable population size to Scotland, has recently generated over five times the oil revenue that the UK Government has in the exact same international market conditions. The UK Government’s management of Scotland’s oil resources have not nearly benefited Scotland to the extent that they could have had Scotland been in control of them.
Over-reliance on one industry is often correlated with economic risk but any risk can clearly be adequately managed by a competent government. The term is more often used as a political attack line than as a legitimate economic critique. Scotland deserves the opportunity to manage its own resources competently.